Ramkrishna Forgings Limited (RKFORGE) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Ramkrishna Forging's Q1 FY '27 earnings conference call hosted by 361 Capital Markets Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Dinesh Kumar from 361. Thank you, and over to you, sir.

Thank you. Welcome to all the participants on behalf of 361 Capital Market for Ramkrishna Forgings Limited 1Q FY '27 Post Results Conference Call. From the management, we have with us today Mr. Naresh Jalan, Managing Director; Mr. Chaitanya Jalan, Full Time Director; Mr. Lalit Khetan, Holding Director and CFO; Mr. Milesh Gandhi, Full-time Director; and Mr. Rajesh Mundhra, Vice President, Finance and Corporate Securities. I will now hand over the call to the management for the opening remarks to be followed by the question-and-answer session. Over to you, sir.

Thank you, Dinesh. Good evening, everyone, and thank you for joining us on this call to discuss the Q1 FY '27 earnings. I trust all of you have a chance to review the earnings document that we have shared earlier today. The global macroeconomic environment remained mixed during the quarter with geopolitical development and evolving trade policies continuing to say business sentiment across major markets. While the service of the [indiscernible] conflict remains an overhang and tariff evasion can rise once again, operating conditions have become more stable compared with the heightened volatility, which we witnessed over the past few quarters. While customer activity across key markets has remained resilient, demand across the commercial vital ecosystem has strengthened further. Supported by heavy production seals and greater policy clarity around regional supply chains. [indiscernible] collections and healthy consultants to reflect the underlying strength of the domestic economy. Reflecting these favorable market conditions, we are pleased to report another quarter of strong operational and financial performance. The momentum is stablished in the later half of FY has carried into the first quarter of FY '27, driven by robust domestic demand, improving export volume and disciplined execution across our increasingly diversified business portfolio. Our international business reported further improvement during the quarter led by stronger demand from North America, alongside improving customer engagement and order [indiscernible] across euro. While tariff retail developments remain in the area of [indiscernible], the operating environment has become considerably more stable, providing greater majority and confidence across our export markets. At the same time, we are expanding our perverse passenger vehicles, electric vehicles and advanced materials, including ammonium and specialty [indiscernible] forgings broadening our addressable market and creating new avenues for long-term growth. Operationally, the quarter business continued progress across several strategic priorities. The integration of our casting operations has now been substantially completed, and we remain focused on scaling products while improving operating EPCs. Production ramp-up across the new [ coding in casting ] facilities continues as planned. With the majority of our strategic capital expenditures now behind us, our focus is this is [indiscernible] these assets through higher utilization, improving et cetera and generating stronger operating leverage. With cash flow set to strengthen, we remain committed to prudent capital allocation and we will seek to reduce leverage while ensuring that adequate capital as deployed towards growth investments and maintenance CapEx. Let me now briefly share the financial highlights for the quarter. Consolidated revenue for third quarter [indiscernible] INR 1,217 crores, which is flat quarter-on-quarter and it has registered a growth of 19.84% year-on-year. EBITDA, excluding other income stood at INR 218.474 that is up by 47% year-on-year and 5% quarter-on-quarter, while EBITDA margin improved to 17.9% from 17.1% in the previous quarter, reflecting better operating leverage and improved product mix. Profit before tax for the quarter stood at INR 65.3 versus INR 23.9 crores year-on-year. And while corporate after-tax -- for the quarter, it stood at INR 46.8 versus INR 11.7 crores year-on-year, reflecting a growth of 172% and 297%, respectively. With that, I would like now -- like to hand over the call to Mr. Milesh Gandhi, Full time Director, who will take you through the order wins during the quarter. Over to you, Milesh.

Thank you, Lalit. It has been an exciting quarter in terms of order wins. The company continued to witness healthy order inflows during the quarter, reflecting sustained customer confidence in our manufacturing capabilities engineering expertise and execution track record. During quarter 1 FY '27, we have secured a business for INR 278 crores with the program life of 4 years from automobile segment. The company also won new orders worth INR 15 crores from Metro segment of Indian Railways. Out of INR 278 crores, approximately 82% of these orders are in passenger vehicle segment and 18% from 2-wheeler segment. We continue to witness encouraging traction across both our existing customer base as well as our new customer engagements supported by our expanding manufacturing footprint and broader product portfolio. Our diversification strategy continues to make steady progress. While commercial vehicle remains our core business, we are seeing increasing opportunities across passenger vehicles, electrical vehicles, energy, mining, off-highway and railway segments. The share of our nonautomotive business in our order book has continued to improve, reflecting our strategic focus on building a more balanced business portfolio. Demand continues to be supported by healthy investment activities across infrastructure, industrial manufacturing and commercial vehicles. While customer discussions across North America and Europe have become increasingly constructive compared to a year ago. We remain confident of sustaining healthy order momentum and building a strong foundation for long-term growth would like to mention we are looking to new ventures within the boundaries of forging and casting business in nonferrous products, manufacturing products from aluminum, titanium, inconel and ammonium grades. For aerospace, robotics and semiconductors. We are seeking to leverage our advanced manufacturing capabilities with our participation as a strong engineering company in high-technological sectors which have been traditionally dominated by global players. We are confident to create a strong impression. That's from my side. Over to you, Lalit. Thank you.

Thank you, Milesh. Now Dinesh, you can open the house for Q&A.

[Operator Instructions]. The first question is from the line of [indiscernible].

Congratulations on the results. Sir, my first question is on the deal JV. Just to understand the TAM, so the -- other than the 80,000 wheel uptake that we have with the Indian Railways, how do we plan on utilizing the remaining capacity? And just in addition to that, the 80,000 meals that we are supplying, the wagon for that will be made by [indiscernible] will be made by the Indian railway production houses themselves.

In terms of the wheel sets, we have an 80,000 conformed order from the railways and railways are going to use these wheels for manufacturing of passenger trains. Locomotives and [indiscernible]. So these are the 3 contracted for these 80,000. So wagon does not come into this. Additionally to that, our JV partners have an obligation of close to 25,000 wheels which takes us the utilization to close to 10,000. And for the balance wheels, I think this 10,000 wheels manufacturing will take us till end of FY '28. And Beyond that, we are already working with our export customers and other amenities beyond Europe and North America where we see a lot of traction in terms of wheel requirements. And we would not like to name the customers right now. Very soon, I think we'll be able to tell our investors in terms of broader wins from the export market in the wheels part.

Sir, just color back to that. Sir, 25,000 from you're saying with the JV partner,.

Considering the amount of rain capacity they have, ideal they require more deals, right? So what's stopping us from supplying more? Basically, they can only buy wheels for the private sector wages within manufacturer. For Indian Railways supplies our FOC basis, which India supplies to them in casting. The cost yields which are manufactured by Indian railways by themselves in Bangalore are basically used for manufacturing guidance and are supplied free of cost to the wagon builders for using to manufacturing wagons.

So sir, this segment, sir, what is the annual demand when it comes to India as a market?

I will not be able to comment on that. So basically, how much is the wagon wheel demand or costing will demand, I am not aware.

So. And sir, just one last question, sir, on our other businesses of forgings and castings. Sir, going forward, we expect utilization to improve throughout the next 3 quarters since you've guided for higher utilizations by this year end?

Yes. I think gradually, you will see every quarter, Q-on-Q, there will be considerable utilization. I think the first quarter we have done extremely well in terms of our overall utilization and top line growth. And I think similarly, you'll see every quarter this is going to get rejected.

The next question is from the line of [indiscernible].

Yes. Just wanted to get online on the railway project because we said it will be commenced in the first week of May, the trial and also on the Mexico acquisition rates done because -- in the last call, we had discussed that this will also start somewhere in May. So how is that panning out?

First, in terms of our real plant already trial production has started. And I think we are expecting to submit samples in the month of August for 300 piece number of wheels to Indian [indiscernible] for the testing and trials and post the trials, we will be able to comment on bulk production. But with our working right now, we expect bulk production to start hoping to full flat supply to railways for the contextual demand by September or October latest from a month-on-month basis. In terms of our Mexico, we have already -- Mexico production have started -- and I think from third quarter, you will see some significant revenues from Mexico. Already this quarter, I think close to INR 6 crore revenues have come from Mexico in terms of our top line. but significant revenue is going to start locking in our books on third quarter of this year onwards.

The next question is from the line of Kaushik Jhawar from AK Investment.

Thanks for the opportunity. [indiscernible] of execution. I mean we have been seeing around patient willing for the last couple of years. I mean we are going through some pain period. It looks like now we are heading for a good growth. So I -- two questions. Maybe, what are the target ROEs for this year and next year, sir?

Lalit, can you take this one?

Yes. So see, ROCE is just coming back to the -- our old levels. So we what we are looking at somewhere between 12% to 15% ROC which we ran. And next year, in FY '28, we will target [indiscernible].

Great. Great. And secondly, sir, what are the -- how much of the revenue are we expecting from export market because we are coming from a destocking year.

We are looking at almost 35% revenue on a consol balance sheet coming from exports for a full year basis.

A little bit quantification, it will be high revenue in now the.

Be the highest ever revenue for RKFL in this financial year of ever done in terms of exports.

Okay. That's great. And lastly, I have a question that 2 to 3 years back because our export shares were high, we were making 22% margin. Do you see that possibility happening in this year?

As an enterprise, we always see possibility of higher margins, who does not want to own higher margins Execution-wise, we are looking at higher exports environment is challenging in terms of the overall energy price and other things, shipping costs and all these things. So we would not like to guide the market in terms of profitability. What we are looking right now is continued growth in terms of balance sheet. And as we have already shown in this quarter, we have improved our margin by almost 100 basis points quarter-on-quarter. This growth in terms of margin and improvement is going to be a continued work, and we are putting all our efforts to -- in the right direction to ensure that we are back to our old profitable.

Okay. Great. And lastly, you mentioned that you are venturing into aerospace and semiconductor can you also throw some light [indiscernible].

No, I think as Milesh has updated that we are already working very aggressively. We have already started working on aluminum forging and we have started bulk supplies in aluminum forging. So nonferrous now becomes the next lever of growth for RKFL. And it is a journey which we have just started. So I think it was at least 12 to 18 months before we have a significant revenue or product lines from this section. But we are very aggressively working on nonferrous products of aluminum, stainless steel and [indiscernible] and other things for aerospace and robotics. So this is the -- and we have already started, we would not like come up with customer names and other things, but we have already started quoting for a lot of RFQs from this sector. And accordingly, we have already planned our equipment, other things in these directions.

The next question is from the line of [ Hardik Cheda ] from [indiscernible].

Sir, my question was a little bit in terms of margin only more than 1 quarter out for the rest of the 3 to 4 quarters. Could you just guide a broad range for where the margins will be for the next full year?

No, I think I would not like to give a range in terms of the margin for the full year, but I can only assure you that you will see continued improvement in terms of margin every quarter now with the -- like Lalit as in your opening statement has already said that we are concentrating on setting the assets right now. And this increase in utilization is going to be -- and plus with export product mix moving up, I think you will see much better margins. Our intention and our aspiration is to go back to the whole margins which we were already achieving -- so I think sooner or later, we will push that margin. But I cannot give how many quarters it may take to get to that.

No problem, sir. Got it. And sir, in terms of margin, what would be the factors which could aid the margins more than what you are targeting or what could be the risk factor? Like what -- what goes on, the margins have come down and vice versa?

The only risk which we are looking at is the geopolitical issues, which is leading to shipping delays because of the shipping delays, there is a lot of working capital pressure which may increase as well as the prices of the energy. Energy is one of the biggest ingredients in overall our forging setup. They made for steelmaking or whether it is for forging as such. So energy happens to be one of the biggest cost lever. And with the war, if cost escalates and energy prices goes beyond control, I think that is one of the major risks which we are running in terms of our profitability.

The next question is from the line of Mitul Shah from Bancomat. Please.

I have a broader question on the overall base on this last 3, 4 months restate crisis, what is our experience in terms of the inquiry levels or consumer behavior on that side, particularly from the non-U.S. geography in terms of the operate communities as well as challenges for auto as well as no auto segment and the import level has gone up significantly or anything.

Metal, I think we are quite optimistic for next 7 quarters next 2 years, FY '27 and FY '28, we are confident with the current order book, which we have with the current -- I think Miles statement stays very clearly. We are flooded and we are very, very in exciting times right now in terms of overall demand in terms of existing products as well as new products and in terms of new RFP inflows, which will cater to new order book going forward. So we are in pretty exciting times. Where is a cost. And I think in terms of demand, we don't see any deflection in demand. I think we are seeing incremental demand coming in. And that's actually the biggest challenge which we are facing right now going forward.

Great, sir. Second question is as we all know with commodity costs as well as [indiscernible] gone up significantly in this quarter. Would you like to highlight anything in terms of the cancer basis point where we are not able to pass on the full commodity impact to the customer. What is the industry-wide [indiscernible]?

Commodity is a pass on for us, if it's a 1 quarter lag. So commodity, whatever increases happen in steel. Steel is the commodity for us, which is the basic raw material. That is a pass on for us. They're super to that gas and other things. I think that is a cost we will need to work with because this is so much fluctuating. I think customers are not prepared to go ahead and pay that shipping cost it depends. Right now, we are seeing some abnormal cost increases, but gradually, we are hoping also that to stabilize. Because when we started this quarter, it was not -- it had already come down. But this is [indiscernible]. I think we are working with customer how to absorb this cost, but we do not have a definite answer for this.

Sir, exactly same question. I was asking about commodity because of the lag effect, this quarter may not be not able to pass on completely, right? Whoever this benefit will be reflected in coming quarters?

That is steel price, only steel price.

Same commodity, is correct. And lastly, sir, on this starting production is -- in terms of metric ton has gone up significantly during the quarter. So can you highlight more details on this as well as any bet on the coal stocking side?

Think production metal had started last quarter. I think you must have seen March press the stock exchange releases we have sent, the costing plant was capitalized last quarter. So that production has started coming in, in terms of -- and still, the plant is work in progress in terms of overall capacity ramp up, you will see gradual increase in production from casting plant, casting capacity over the next 3 quarters. And in terms of all four other things, I think we are working diligently in terms of improving the capacity utilization. I think by almost say, third quarter, we will be more than 70% capacity traction in core 4G.

The next question is from the line of Manav Shah from Dalal and Roche.

[indiscernible]. So my first question was related to males. So our gross margins have aged by 55 million Q-o-Q 85 basis points cut. So if my additioning is correct, even with volumes being significantly the entire improvement in EBITDA margins is prices not an operational leverage. So how do we think that this EBITDA margin improvement is going to play forward we cannot be hearing price revision in contracts.

No, I think it is wrong to say that this is only because of price revision. I think because of the better product mix and other things, that is the reason there is an increase. I think gross margins are traditional. It has increased while the EBITDA has not increased because mostly because of the energy costs, shipping costs, all these costs, we have not been able to pass -- that is one of the major reasons. Otherwise, if this cost -- whenever it stabilizes, you will see significant improvement in EBITDA margin and then the -- Hello. Hello. Hello. I think [indiscernible]. Can the moderator please check where is the noise is coming from?

Yes, sir. The line from where the disturbance was coming has been muted.

Okay. We can go to the next call, I think.

The next question is from the line of Abhishek Jain from Chris PMS.

[indiscernible]

You're not audible, please.

Are you able to add me this?

Yes.

So sir, first of the company relation for the great set of numbers in a tough time. My first question on the export market. We have seen very strong numbers Y-on-Y and quarter-on-quarter. So just wanted to understand the outlook ahead Basically, what is the guidance of export growth for the FY '27. And how is the improvement in the class orders in the U.S. and improvement in European business?

I think we are looking at one of the best years in terms of the overall export revenue in terms of RTL is concerned, both from geographies of North America and Europe we would not be able to comment on class trucks, how it is behaving and what exactly it is resulting to. But in terms of RTL order book and what traditionally what we are seeing in terms of our existing customers and the new customers. We look at an extremely healthy growth and maybe it is not wrong to comment that we should have one of the best years in terms of our overall [indiscernible] in this financial year.

So as the base of the export is low, so can we expect that 20%, 25% growth in export in this year?

Yes, we are looking at almost 20% plus growth in terms of exports.

Got it, sir. And sir, in the domestic Myers date, the ligation has seen a very sharp jump in quarter-on-quarter. So is it because of the change in the mix in the non-auto segment? Or higher revenue from the casting business.

No, basically, it is a mix of change of revenue from higher mix were because of the demand we have been able to improve our utilization and we have been able to choose much better margin products and much better realization product. And that is one of the reasons that we have been able to have a higher realization in the domestic market.

And in the domestic market, what is your guidance for the volume growth in this.

I think domestic market continues to be robust, and the demand looks to be extremely good. And with the any season almost, I think by September, going to be in next 2 months going to go over next half looks to be extremely exciting in terms of the domestic demand.

And sir, if I see the subsidiaries numbers, so we have seen a improvement in the EBITDA margin. Now it has moved to that 21% versus 16% in the last quarter. But depreciation cost has increased. So I just wanted to understand what is the region of the SAP margin expansion in the subsidies companies? And what is the reason of the depreciation increase in the depreciation cost?

Lalit, can you take this question.

So see, the margins are in a little bit better or I will be marginally better in the subsidiaries in this quarter than the previous quarter. There is no staff contraction. Because due to the higher elimination, you are seeing this 21% margin, but margins are 50 to 100 basis points higher than the previous quarter in the subsidy. And certainly, the depreciation is increased due to the capitalization in the Q4 in the subsidiary also whatever the projects we are doing that has completed. So that's why the deficit has gone up and it will continue at this level in the coming.

Got you. And my last question on the, sir, Aerospace Defense segment. So I just wanted to understand how much the current contribution from this business? And what kind of the numbers you are looking from this business. And you are also establishing capacity for the titanium and other alloys. So if you can throw some light over there because that is a high-margin business. and the ASP would be at a higher side. If you can throw some light over there.

Hello. Sir, can you hear us?

yes, I can hear you.

Yes,sir. Go ahead.

I think we have 0 exposure right now to any aerospace activity right now. And next, we are already in terms of coating in RFQs and other things. We are looking at in next 2 years to build up our order book in terms of aerospace and semiconductor and robotics and other things. And we are already putting and establishing capacities to manufacture in clonal and titanium products.

The next question is from the line of [indiscernible] Oil bridge Mutual Funds.

Congratulations on a really good set of numbers. I'm sorry, I joined the call a bit late. But when we are getting into products like titanium and inconel they would think there will be a good amount of period that can go into approval of these products and capability building, and if that is the case, then what should be the time line we should have in our mind that when these products will be operationalized and starts contributing to top line.

Any meaningful contribution, I think it's at least 2 years from now. So I think I reply to the earlier question also, we have 0 order book. We have started quotation quoting in RFPs, and we have started building all capabilities as in work in progress in terms of our manufacturing of inconel and other steel. Already aluminum, we already have in place, and we have already started productionizing going into bulk, we have already gone into bulk production in aluminum forgings. But in terms of stainless steel and other things, we are -- that is work in progress. I think a significant portion of stainless steel forging will start happening because we have already got some order books from fourth quarter of this financial year. But in terms of Econoline, I think it is still work in progress, and it will take at least 8 to 10 quarters from now.

Okay. Okay. And if we have to build the capacities on these fronts for important titanium, what is the CapEx that we have in our mind that can go into building these capacities?

No, right now, we already have capability and capacity only hitting arrangements are being made to -- for hitting these deals. Other than that, I don't think there is any going to be -- in terms of the current RFPs we are handling, there will be no major CapEx. It may be in the tune of INR 10 crores to INR 15 crores or at the most INR 20 crores to go away with the CapEx immediately. And when we going to a significant portion of the business, then we may look at a significant ramping of capacity, then we may need to additional CapEx.

Okay. Okay. One last question, sir, on orders. We have got INR 278 crores of orders from the auto segment. So is this all domestic that we have bought? Or is it some -- or what [indiscernible].

Of INR 27 crores, INR 8 crores, this entire business is from domestic because the 2-wheeler business, around 18% that I stated is also a domestic trend, and the 82% order for the passenger retail segment is also water.

And correction in the business two-wheeler business, the crankshaft business that we are doing from the machining facility that we have in our Gurugram business Okay.

The next question is from the line of Viral Shah from Enam Holdings.

Sir, my first question is, would it be possible to share the gross and the net debt numbers.

So we'll -- we have shared this was a vented number last time, and we have been able to improve upon the net debt by another INR 100 crores in this quarter. So last quarter, if you remember, 1990 was the net rate and 89 or INR 1,900 crore of net debt this quarter.

Okay. So this quarter is INR 1,900 crores. And how are you looking at these numbers by the end of the year unless you can answer that.

Yes. We have already guided in our last call, we will review this INR 500 more of leverage increase financial year, and we are on track.